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Development

2019 IMF and World Bank Annual Meetings - Written Statement to the Development Committee

 

Written Statement to the Development Committee by Angel Gurría

OECD Secretary-General

13 April 2019 - Washington, D.C.

 

 

Emerging technologies are a positive force for change in our economies and societies.


1. Developments in science, technology and innovation are major drivers of change in modern societies, pushing the boundaries of our knowledge and enabling new paths towards social and economic development. Innovation is a critical ingredient for strengthening growth performance, providing the foundation for new businesses and job creation, and facilitating a greener and more sustainable growth path (OECD, 2018a). Together, science, technology and innovation can do much to help address societal challenges at the lowest cost, and enable all economies to be more competitive, adaptable to change and better able to support higher living standards. These issues will be at the heart of the OECD’s 2019 Ministerial Council Meeting – Harnessing the Digital Transformation for Sustainable Development: Opportunities and Challenges.

 

The ecosystem of digital technologies holds great potential.


2. In recent years, many promising new technologies have emerged, driven by dramatic increases in computing power and a simultaneous decline in related costs over the past 60 years. These technologies have the potential to be widely applied and to make significant contributions to growth and well‑being (OECD, 2019a). Key technologies include:

  • The Internet of Things (IoT), where devices with short- and long-range communication connectivity are generating masses of data that enable new business models, applications and services;

  • Cloud computing that provides clients with flexible, on-demand access to a range of online computing resources, increasing affordability, availability, capacity and variety for firms and individuals alike;

  • Big data analytics, where new techniques and software are extracting information from data to support data-driven innovation across sectors, with significant potential for driving gains in well-being (via, for instance, applications in health); and

  • Artificial Intelligence (AI), where machines and systems acquire knowledge and apply knowledge, including by performing a broad variety of cognitive tasks (such as pattern‑recognition and decision-making).

 

3. These and other technologies (such as next-generation wireless networks (5G), blockchain and high-performance computing) form a digital technology ecosystem, where their complementaries are multiplying their potential. For example, cloud computing’s effectiveness requires always-on, everywhere-available and high-speed Internet connectivity and is essential to big data analytics. Some of these digital technologies are also closely associated with the Next Production Revolution, where they are combining with industrial biotechnology, new materials and nanotechnology to open new production frontiers as well as solutions to global environmental challenges.

 

4. All these technologies rely on a strong communications infrastructure – a fixed network that is essential for supporting a wireless mobile network and acts as a new backbone to modern economies akin to ports, roads and bridges.

 

Technological progress is global.


5. Science, technology and innovation are taking place in an increasingly global context, with innovation drawing on knowledge and ideas from across the world.
Emerging economies are playing a growing role, in particular China, which became the second largest funder of R&D in 2015, behind the United States (OECD, 2019b). Some cities within China are already playing in the global league, with Shenzhen investing over 4% of its GDP in R&D, close to the rate of leading OECD countries such as Korea and Israel (OECD, forthcoming). China, India, Iran and Malaysia all more than doubled their share of top-cited AI publications over the past decade (OECD, 2019c). Since 2000, the number of patent filings has increased by 45% on a global basis, with countries such as Chile, Colombia and Thailand seeing important increases in activity.

 

6. Developing countries are also observing a rise in tech start-up activity, such as the Kenyan mobile banking start-up M‑Pesa, which has increased access to low-cost financial services for millions of customers (OECD, 2019f). The rise of China and other emerging economies has created a new pole for scientific and technological activity outside of the post-war dominance of the G7.

 

Emerging technologies are disrupting scientific and innovation processes.


7. Notwithstanding their potential, many of emerging technologies are also disruptive
(OECD, 2019d). Digitalisation is reshaping all stages of science, from agenda‑setting, to experimentation, knowledge‑sharing and public engagement. It is particularly enabling open science, which could make science more efficient and effective and speed the translation of research findings into innovation and improvements to well-being. Digital technologies are also speeding innovation cycles, fueling collaboration and driving new areas of product and service development. At the same time, as these trends rely crucially on access to, and the sharing of, data. These disruptions are raising policy challenges related to, inter alia, data governance, intellectual property rights and the human and institutional capabilities required to make the most of digital technologies in the scientific and innovation domains.

 

Wider impacts on markets and social issues are also appearing.


8. Digital and other emerging technologies are also having a disruptive effect on labour markets, business dynamics, privacy and digital security, as well as notions of equity and inclusion (OECD, 2019a). Between 2006 and 2016, four out of ten new jobs in the OECD were created in highly digital-intensive sectors and total employment increased by about 30 million jobs. But these aggregate numbers conceal turnover, as new technologies both create and destroy jobs. These new jobs require new skills, such as quantitative analytical capabilities and the ability to translate analysis into concrete actions by working in groups and conveying insights to others. Digital technologies and data are also transforming how firms compete, trade and invest. Firms in highly digital-intensive sectors enjoy “scale without mass” and typically have higher profit margins while employing fewer people. This can result in a change in the calculus of what to produce where, leading to shifts in global value chains where labour costs are no longer paramount. Such trends pose questions for competition dynamics, market openness and development.

 

The creation and diffusion of disruptive technologies remains uneven.


9. More than 50% of the world’s population is now connected to the Internet, with the share in developing countries increasing from under 8% in 2005 to over 45% at the end of 2018 (ITU, 2018). The diffusion of mobile phones (reaching 80% in developing countries), and mobile broadband in particular, is enabling more people to connect to digital networks and services and seize the benefits.

 

10. But disparities remain between countries in terms of their uptake of emerging technologies and their participation in the supporting scientific and innovative activities. An estimated 3.7 billion people are still offline, unable to participate meaningfully in the digital economy; in Africa, less than a quarter of the population uses the Internet. There are, on average, more than 20 fixed broadband subscriptions per 100 inhabitants in high and upper-middle income countries, but 10 times fewer in lower middle-income countries (G20, 2018). Robot intensity in manufacturing in Korea and Japan is three times that of the average OECD country (although the average density is increasing quickly in economies such as Brazil, China and South Africa). Meanwhile, in 2013-2016, five economies accounted for 72% to 98% of patenting activity in the top 25 fast-accelerating digital technologies (OECD, 2019c), while the United States accounts for the majority of AI start-up equity investments worldwide, followed by China (OECD, 2018b).

 

11. Within countries, a small number of firms are typically responsible for a large proportion of total business R&D, and the top 200 corporate R&D investors globally accounted for about 70% of R&D expenditure and 60% of IP5 patent families in 2014 (OECD, 2017a). Big data analytics are performed by just 12% of businesses overall (OECD, 2019c).

 

There is a common policy imperative to harness disruptive technologies.


12. Governments are facing a common challenge to set an appropriate policy environment for firms and individuals to harness the potential of emerging technologies while managing the associated challenges. The uneven diffusion of digital and other emerging technologies is an important source of the productivity slowdown observed in many economies. There is a widening performance gap between more and less productive firms, especially in ICT services sectors, driven by frontier firms pushing the productivity frontier and laggard firms stagnating (OECD, 2019e). Firms enjoy productivity gains from higher rates of digital adoption in their industry, either as upgrading their own technology improves their efficiency or as they benefit from productivity spillovers when other firms in the same industry adopt digital technologies (Gal et al., 2019). This diffusion challenge is all the more critical as “combinatorial” technology advances can mean those who do not master an initial step risk lagging behind. This may be the case in AI, for instance, where advances in big data analytics have led to innovations in machine learning applications, which in turn have led to AI developments.

 

An integrated policy approach is needed to achieve an inclusive digital transformation.


13. The OECD’s Going Digital project identifies seven policy dimensions that governments – together with citizens, firms and stakeholders – must address to shape digital transformation and improve lives. As part of a coordinated, whole-of-government strategy, policies need to be put in place to enhance access, increase effective use, unleash innovation, ensure good jobs for all, promote social prosperity, strengthen trust and foster market openness in the digital era. Some key lines of action include (OECD, 2019a):

  • Lowering barriers to trade and investment, promoting competition, simplifying administrative procedures and boosting connectivity in rural and remote areas to enhance access to networks, services and data.

  • Enhancing access to data, including through sharing mechanisms that reflect legitimate national, private and security interests.

  • Empowering everyone with a mix of skills to thrive and trust in a digital world, boosting the adoption and diffusion of digital tools to drive productivity growth in firms, and fostering business dynamism and structural change.

  • Promoting entrepreneurship, facilitating access to finance, supporting basic research and knowledge diffusion, and opening up government data.

  • Facilitating fair transitions into new jobs and improving social protection to ensure no‑one is left behind.

  • Strengthening foundational skills and life-long learning, and tackling risks such as cyberbullying and disinformation.

  • Encouraging people and organisations to better manage digital security and privacy risks and improving consumer protection online, including through developing national privacy strategies.

  • Promoting open financial markets, reducing barriers to trade and investment, tackling changing competition dynamics (including issues related to increasing concentration), and addressing tax challenges through more effective international co-operation.

 

Healthy innovation ecosystems are essential for taking up emerging technologies.


14. Productively mainstreaming disruptive technologies will occur faster in the presence of healthy innovation ecosystems
. Many technologies – especially basic digital technologies such as computers and software – are readily available on the market and are no longer considered expensive for many countries. Technological catch-up can also be aided by the effective use of technology licensing and other mechanisms. But to be able to transform new technologies into economic and social opportunities, countries and firms must invest in R&D, skills, software, organisational change, new processes and business models, and also intellectual assets (such as branding and intellectual property) that help fuel innovation and create value from new technologies (OECD, 2015). These investments complement technology; their importance is reflected in the fact that in many OECD countries, firms invest as much in the knowledge-based capital that drives innovation as they do in physical assets, such as machinery, equipment or buildings (OECD, 2017a).

 

Developing countries particularly need to establish a solid base for innovation.


15. Developing and emerging economies typically share a wider set of weaknesses in their innovation systems, which pose deeper challenges to harnessing digital technologies and demand policy action over an extended time scale. These include a lack of skilled human resources, weak innovation capabilities in firms, and a disconnect between industry and universities and public research organisations, both in terms of research and education (OECD, 2013; and OECD, 2014). Moreover, many are confronted with fragmented systems of innovation, which call for improved governance of innovation policy. In many cases, serious shortcomings in the framework conditions for innovation, such as lack of competition or poorly functioning product and financial markets, also need to be addressed to make policies targeted towards innovation activities more effective (OECD, 2015).

 

Donors can play a role in attracting the private investment needed to bridge the digital divide.


16. International co-operation can support many aspects of the digital transformation. Donors are helping to attract the private investment needed to bridge the digital divide by providing developing countries with technical support and risk-mitigation mechanisms that help to crowd-in private funds. Aid commitments to ICT projects stood at USD 1 billion in 2017, mostly in the form of technical assistance for regulatory reform. Once the regulatory framework is in place, this increases the willingness of the private sector to invest in ICT hardware. The 2017 OECD-WTO aid for trade monitoring exercise found that ICT is prioritised in the development strategies of two-thirds of donors, while 90% of developing countries anticipate the need for future assistance in this area. Official development support (assistance and finance) can contribute towards strengthening the business environment to drive further investments, support key infrastructure projects with concessional or non-concessional financing, and use blended finance to mobilise additional resources from the private sector.

 

Multilateral dialogue is crucial to set a path for certain disruptive technologies.


17. Ensuring disruptive technologies work for all also requires deeper dialogue at the multilateral level. The development of AI is a case in point, where this technology’s fast adoption and uptake around the world is raising a number of questions – such as human determination, privacy, safety and accountability – which are common to many if not all countries. It is critical that this dialogue on AI also be multi-stakeholder, given that private sector actors play a leading role in terms of the investment and deployment of AI, and because AI affects all people in every economic sector.


18. A number of bodies, including the OECD, have stepped up efforts to provide “rules of the road” for AI. In the OECD’s case, multi‑stakeholder dialogue has led to the development of a set of principles for responsible stewardship of trustworthy AI. The principles call on those playing a role in the AI system lifecycle to promote value-based principles including inclusive growth, human-centred values and fairness, transparency, security and accountability. They are complemented by recommendations to inform national policies and guide international co‑operation, including investing in AI R&D and building human capacity and preparing for labour market transformation. The principles encourage governments to work together to foster knowledge-sharing and the development of global technical standards. They aim to promote a human-centric approach to trustworthy AI that fosters research, preserves economic incentives to innovate and offers a stable policy environment.

 

More international action is needed to harness disruptive technology for the SDGs.


19. An important goal of mainstreaming emerging technologies must also be to help achieve the Sustainable Development Goals (SDGs). Many countries are exploring how to link science, technology and innovation more directly to the SDGs (for example, through a greater focus on clearly defined goals, or missions). There has been a visible shift in the allocation of public R&D budgets in the OECD, with data on national government budget appropriations showing an increase in environment‑ and health-related R&D and, to a lesser extent, in earth and space-related R&D in the last two decades (OECD, 2018a). Societal impact is also now one of the main criteria used to select research projects for public funding, ahead of possible commercial applications or even alignment with national goals.


20. Nevertheless, to make real progress, there is a need to embed the SDGs more fully within science, technology and innovation policy frameworks and fuel ambitious international co-operation that can leverage limited public resources, including with innovative forms of development finance and partnerships for development (OECD, 2018a; OECD, 2019f). Several factors impede multilateral action and international co-operation in this area, including national research focus, global public-good problems, a lack of trust and legal regimes, and low government and business capacity in partner countries. Avenues for policy action could include instilling greater “directionality” in technology and innovation polices, better using “road‑mapping” to identify gaps and interlinkages, strengthening support for interdisciplinary research, and improving interlinkages between official development assistance and science, technology and innovation policies.


21. Recognising the trade-offs and synergies between the SDGs and examining their interlinkages is essential to achieving the 2030 Agenda. The OECD is continuing to support countries and the international community through the OECD Action Plan on the SDGs by leveraging its policy tools, instruments, dialogue platforms and evidence. This includes the development of indicators and qualitative and quantitative information, in co-operation with international organisations and institutional partners.

 


References

G20 (2018), G20 Toolkit for Measuring the Digital Economy, November.
Gal, P., et al. (2019), "Digitalisation and productivity: In search of the holy grail – Firm-level empirical evidence from EU countries", OECD Economics Department Working Papers, No. 1533, OECD Publishing, Paris.
ITU (2018), “New ITU statistics show more than half the world is now using the Internet”, December.
OECD (forthcoming), Production Transformation Policy Review of Shenzhen, OECD Development Pathways, OECD Publishing, Paris.
OECD (2019a), Going Digital: Shaping Policies, Improving Lives, OECD Publishing, Paris.
OECD (2019b), Main Science and Technology Indicators, MSTI 2018-2, February.
OECD (2019c), Measuring the Digital Transformation: A Roadmap for the Future, OECD Publishing, Paris.
OECD (2019d), “Fostering science and innovation in the digital age”, OECD Going Digital Policy Note, OECD, Paris.
OECD (2019e), “Productivity Growth in the Digital Age”, OECD Going Digital Policy Note, OECD, Paris.
OECD (2019f), Perspectives on Global Development 2019: Rethinking Development Strategies, OECD Publishing, Paris.
OECD (2018a), OECD Science, Technology and Innovation Outlook 2018: Adapting to Technological and Societal Disruption, OECD Publishing, Paris.
OECD (2018b), “Private Equity Investment in Artificial Intelligence”, OECD Going Digital Policy Note, OECD, Paris.
OECD/WTO (2017), Aid for Trade at a Glance 2017: Promoting Trade, Inclusiveness and Connectivity for Sustainable Development, WTO, Geneva/OECD Publishing, Paris.
OECD (2017a), OECD Science, Technology and Industry Scoreboard 2017: The Digital Transformation, OECD Publishing, Paris.
OECD (2016), Better Policies for 2030: An OECD Action Plan on the Sustainable Development Goals
OECD (2015), The Innovation Imperative: Contributing to Productivity, Growth and Well-Being, OECD Publishing, Paris.
OECD (2014), Perspectives on Global Development 2014: Boosting Productivity to Meet the Middle-Income Challenge, OECD Publishing.
OECD (2013), Perspectives on Global Development 2013: Industrial Policies in a Changing World, OECD Publishing, Paris.

 

 

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